Government to pay contractor executives more

Apr. 24, 2012 - 04:28PM
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Sens. Barbara Boxer, left, and Chuck Grassley attempted to lower the top contractor pay cap within the 2012 National Defense Authorization Act in December but were unsuccessful. (Getty Images (left), Agence France-Presse photos)

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The government is raising the cap on what it pays contractors' top five executives to $723,029, a 10 percent increase, federal procurement officials announced Monday.

The cap, up from $693,951, applies to contract costs for compensation — including wages, salary, bonuses and deferred compensation — incurred after Jan. 1, 2011, according to a notice published in the Federal Register. It applies only to a contractor's top five executives; other contractor employees can earn more.

The cap is based on a federal executive compensation formula that pleases neither the administration nor federal employee unions.

"Current federal employees have had their own salaries frozen for two years and new employees will have to pay four times as much in retirement contributions, saving the government $75 billion. Yet nothing is being done to trim out-of-control contractor spending," said John Gage, national president of the American Federation of Government Employees.

The Office of Federal Procurement Policy usually updates the cap every year. The office delayed the issuance of last year's cap as the administration urged Congress to tie contractors' compensation to federal salaries. The administration used this week's announcement to repeat its dissatisfaction with the formula.

"This rate of growth in the cap (both from 1995 onward, and in this most recent year) has far outpaced the rate of inflation, the rate of growth of private-sector salaries generally, and the rate of growth of federal salaries — forcing our taxpayers to reimburse contractors for levels of executive compensation that cannot be justified for federal contract work," Lesley Field, acting administrator of the Office of Federal Procurement Policy, said in the notice.

President Obama asked Congress last year to scrap the formula that sets the reimbursement cap and instead tie it to what the government pays its own top executives, about $200,000.

Sens. Barbara Boxer, D-Calif., and Chuck Grassley, R-Iowa, attempted to lower the cap within the 2012 National Defense Authorization Act in December but were unsuccessful. But the 2012 NDAA that passed extended the salary cap to all defense contractor employees, not just the top five, starting Jan. 1, 2012.

Boxer and Grassley introduced legislation in March that would limit the taxpayer reimbursement for government contractor compensation to the amount of the president's salary — $400,000. The measure would extend the cap to all government contractor employees.

Industry advocates oppose efforts to tie contractor compensation to federal employee salaries. That would hurt contractors' ability to find talent in the competitive private sector, much like low federal pay has been a barrier to attracting and retaining highly skilled federal workers, Stan Soloway, president of the Professional Services Council trade association, said in a statement. A better solution would be to give agencies more flexibility in how they hire and compensate different employee groups, Soloway said.

"It is the norm in the private sector to focus scarce resources, including compensation, on critical, core skills," he said.